Forex Trading: Are You Gaining or Losing?
Nov 13, 2009 currency trading
In almost every country worldwide, you will probably see this huge market that is open 24 hours a day and seven days a week. The market that I am referring to is the Forex market. In here, you wouldn’t be able to find the similar services, products and commodities that your local market offers. Instead, you’ll find traders that are busy trading different currencies. Every trade that takes place in the Forex market involves two difference currencies. For instance, you want to buy US dollars using your Japanese Yen. Or, you would like to sell your Canadian dollars in exchange of Euros. The exchange rates and the value of currencies fluctuates everyday. In effect, traders should monitor these trends to determine the price of a certain currency.
In one day, a certain currency can change its value for a number of times without prior notice or warning. Hence, it is very vital to keep track of the trends. Political events and economic changes are huge contributors to the movement of the Forex market. To help you determine if you are losing or gaining in Forex trading, this article will be discussing important points you have to take nate of.
The Forex investment is greatly affected by the exchange rate and in order to understand the relationship between the two, you should also be familiar with Forex quotes. Like the currency pairs, Forex quotes can be found in pairs as well. Here is a very good example:
1.Suppose the currency pair is USD (US dollar) and CAD (Canadian dollar)
The quote given to this currency pair is USD/CAD=170.50. To read this this, you say: “One US dollar is equivalent to 170.50 Canadian dollars”. Left side is always reserved for the base currency which is equivalent to 1. This is also the stronger currency. For this example, the base or strong currency is the US dollar. On the right corner, is the counter currency, the Canadian dollar. Forex quote makes use of USD as the central currency, which is also true in other countries.
Wondering how you can determine if you are reeling in profits or losing your money?
2.This time use EUR to USD. Assuming that the Forex rate is 1.0857; in this example, the USD is the weaker currency. If you bought 1,000 Euros, you will need to pay $1,085.70. After a year, the Forex rate was at 1.2083 and this means that the Euro’s value increased. If you decide to sell the 1,000 Euros now, you will get $1,208.30; now, in this transaction, you gained $122.60. What if the Forex rate a year after was 1.0576? This means that the Euro’s value weakened. If you still decide to sell the 1,000 Euros, you will only receive $1,057.60 which means that you lost $28.10; did you get it?
Forex trading involves a lot of risks just like mutual funds and stocks. The fluctuations in the exchange market are responsible for such risks. Low level risks like government bonds in the long-term can give returns but are quite low. If you want to get higher returns, you need to invest in Forex trading but you need to face higher level risks.
To protect your finances, its best that you establish for long and short term period. This tactic would allow you to be more confident in your trades. You can make use of the Forex system available for you in order to help you make wise decisions. Now, it would be easier for you to determine if you are gaining or losing profits.
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